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LG Chem’s Financial Stability Wanes Amid Increased Borrowing and Heavy Investment

Debt Ratio Rises Sharply as Company Pursues New Growth Engines in Challenging Market
South Korea
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LG Chem has reported a significant increase in net borrowing, highlighting concerns about its financial stability amid ongoing investments in new growth areas. According to the company’s quarterly report released on May 23, net borrowing reached 8.5 trillion won (US$6.22 billion) by the end of the first quarter of 2024, a substantial rise from 5.76 trillion won at the end of 2022 and 7.84 trillion won in the first quarter of 2023.

The surge in borrowing has led to a notable increase in LG Chem’s debt ratio, which climbed to 71.1% in the first quarter of this year. This is up from 56% at the end of 2022, 65.5% in Q1 2023, and 67.1% by the end of 2023. The rising debt ratio reflects the company’s decreased ability to generate operating cash in a weakened market environment, compounded by its aggressive investment strategy aimed at identifying new cash flow sources.

Vice Chairman Shin Hak-cheol has prioritized three major growth drivers for LG Chem: battery materials, eco-friendly materials, and new pharmaceuticals. Despite the financial challenges, LG Chem has committed to substantial investments in these areas, with the goal of boosting sales from 31 trillion won in 2022 to 70 trillion won by 2030. The company has earmarked 4 trillion won for capital expenditures (CAPEX) to support these initiatives.

However, LG Chem’s financial performance in the first quarter of this year showed declines, with consolidated sales and operating profit at 11.61 trillion won and 264.6 billion won, respectively. This represents a decrease of 18.7% in sales and a 67.1% drop in operating profit compared to the same period last year.

In light of these developments, Moody’s downgraded LG Chem’s credit outlook from “stable” to “negative” in February. The company has taken steps to mitigate its financial strain, including raising 1 trillion won through the issuance of Korean won-denominated bonds in March and selling non-core assets. Last year, LG Chem divested its IT film and diagnostic businesses and halted operations at its Daesan and Yeosu factories that produce styrene monomer, a petrochemical raw material.

Despite the challenges, LG Chem remains focused on its long-term growth strategy, betting on its new growth engines to drive future success and stabilize its financial footing.

 

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